An advantage of a convertible security is that it provides for deferred common stock financing. The purpose of deferring the sale of common stock is to
A) increase the leverage of the firm.
B) dilute the ownership interest.
C) minimize dilution in earnings per share.
D) time the sale of common stock when the price per share is basing.

Question

Quizplus · Accepted Answer

Deferring the sale of common stock through convertible securities can help minimize dilution in earnings per share. This is because the conversion of the security into common stock is typically done at a set price or formula, which can help avoid issuing common stock at a time when the market price is low. By giving investors the option to convert, it also provides more flexibility and potential upside compared to a straight debt issuance.

An Advantage of a Convertible Security Is That It Provides